The disclosure of information about the range of asset value in market

TL;DR

This paper models how disclosing range information about asset values influences market dynamics, showing it can reduce price sensitivity to private signals and affect asset premiums depending on the range's position and precision.

Contribution

It introduces rational expectation models to analyze the market effects of range information disclosure, highlighting how it impacts liquidity and price sensitivity.

Findings

Range disclosure decreases market price sensitivity to private signals.

Disclosed range position influences asset premiums.

Range disclosure affects market liquidity and price reactions.

Abstract

The information released to investors in financial markets has various forms. We refer to range information as information about the upper and lower bound which the payoff of a risky asset may reach in the future. This study develops rational expectation models to explore the market impacts of disclosure of range information. Our model shows that its disclosure can decrease the sensitivity of market price to private signal and increase market liquidity. The market impact of its disclosure depends on the position and precision of the disclosed range. When the linear combination of private signal and noise trading volume is distant from the disclosed range, the reaction of price to a variation in private signal will almost vanish, whereas a movement of the disclosed range can affect the price efficiently. If the midpoint of the disclosed range is higher (lower) than a criterion which is specified in this study, the disclosure will reduce (raise) asset premium.